The Hottest Mutual Funds

Mutual funds, widely advertised and permitting investments as modest as $1,000, remain an individual`s easiest access to the stock market. They`re also a barometer of what`s hot and what`s not.

Right now, returns from funds investing in stocks of foreign companies are sizzling compared with those investing in U.S. firms. International funds burned the competition with a 9 percent third-quarter gain and 21 percent for the year so far.

``Quite frankly, it`s because the U.S. stock market currently ranks 17th among world markets, and overseas corporate profits are growing at a substantially faster rate,`` explained Henry de Vismes, who manages the $32 million Transatlantic Fund, up 17.6 percent in the last quarter. ``As this continues into 1986, with a likely added boost from a declining U.S. dollar, many more investors are becoming interested in our fund.``

The day after major finance ministers recently announced their pledge to work at weakening the U.S. dollar, Kemper International Fund leaped 4 percent in value. Gains in many currencies and a comeback by lagging foreign economies have definitely helped out lately. Yet the volatility in foreign investment isn`t always positive. The inherent risk keeps many investors wary.

``Ours was the best-performing fund in the Kemper group in 1983, the worst last year and is best again this year,`` said Gavin R. Dobson, who manages that $51 million Kemper fund, which gained 15.51 percent the last quarter. ``I`d never suggest that an individual investor place more than 20 percent of his overall portfolio into international stocks or funds, since so much can happen that`s tough to predict.``

The top-performing stock mutual funds in the third quarter, according to Lipper Analytical Services, were:

-- Transatlantic Fund, Kleinwort Benson International, New York, a ``no-load`` fund (meaning it imposes no sales charge on its shareholders), up 17.6 percent.

As the world draws closer economically, overseas investment has been somewhat of a headache for Americans. Hundreds of large foreign firms are traded on U.S. exchanges as American depositary receipts (ADRs), which are receipts for shares of a foreign corporation that are held in U.S. bank vaults. But smaller companies often are not traded here, requiring the investor to go through a broker that can hold the shares in the foreign country.

In some cases, company annual reports and other information come only in foreign languages. There are those currency worries. And keeping tabs on foreign economies is always a tall order.

This confusion has led in the 1980s to growth of international funds, which toss those worries to professional managers. While some of their investment choices are familiar, others are hardly household names. Transatlantic invests in Australia`s Broken Hill Proprietary (around $12 a share, traded over the counter as an ADR) in natural resources, Japan`s Ito Yokado (around $53, OTC) in retail stores, West Germany`s Siemens (around $236, OTC) electronics firm and Volkswagen (around $126, OTC), Italy`s Olivetti (around $4, OTC) and Britain`s Jaguar (around $4, OTC).

``In my business, when people ask me what I think of the market, they mean 28 different markets,`` said George L. Noble, manager of the $85 million Fidelity Overseas Fund of Boston, up 45.87 percent in the first nine months of 1985 to lead all stock funds. ``While there are lingering questions about the U.S. economy, the momentum of many foreign countries is now positive, and they have overcome their slow movement of recent years.``